I hear this expression a surprising amount, almost on a daily basis. It means "it doesn't matter", "it's not a big deal". It's always said quite sincerely.
I heard it today at the grocery store, when I had left the stroller completely blocking the aisle while I looked for the particular baby food I wanted (Finian has decided to eat at last): "Oh I'm sorry for blocking your way". "Ce n'est pas grave".
I heard it yesterday when I picked Ailbhe up from school and her teacher explained patiently to me that Ailbhe had lice: "LICE - are you sure", "Oui, mais ce n'est pas grave".
I heard it a few days ago when Ailbhe scooted straight into a perfectly dressed, elderly French lady: "I am so sorry for the multiple breaks your brittle bones have just received". "Ce n'est pas grave".
We're currently in lice crisis mode. Pour moi, c'est grave.